Payday Loan Times

A payday cash advance lending business violated Pennsylvania consumer law by providing loans of as much as $500 to people in return for 6 percent interest plus a $150 monthly fee, a state court ruled Tuesday.

A Commonwealth Court panel agreed with the Banking Department’s claim that fees charged by Advance America Cash Advance Centers exceeded limits of the state’s Consumer Discount Company Act.

The Banking Department sued Advance America’s parent company, NCAS of Delaware LLC, in September, three months after the company began offering the bad credit payday loan product.

The lawsuit called Advance America’s $150 ”monthly participation fee” an illegal and usurious sham.

The opinion issued Tuesday prevents Advance America from continuing to lend money or ”collecting on lines of credit or loans currently outstanding in the Commonwealth of Pennsylvania pursuant to the” violations of state law.

But the judges also said the company may pursue its allegations of constitutional violations and cautioned that the case record was not sufficient for them to determine whether the participation fee amounted to ‘’sham interest.”

Advance America spokesman Jamie Fulmer said the faxless payday advance company had no immediate comment on the effect of the injunction.

”Families who seek these types of loans are usually living paycheck to paycheck and need just a little bit more to make it to Friday,” she said. ”Preying on their need by charging exorbitant fees is simply unconscionable.”

Advance America, based in Spartanburg, S.C., calls itself the country’s leading provider of payday loans, with more than 2,800 centers, including about 100 in Pennsylvania.

In the Lehigh Valley area, it has offices in Allentown, Bethlehem, Easton, Whitehall Township, Stroudsburg and Pottsville.

There are some organizations in Pennsylvania, such as The Ludwig Von Mises Institute, which support faxless payday loans and oppose the government regulation of it.

“We recognize why payday lending exists,” Dr. Mark Thornton, senior fellow at the organization, said.

“[No faxing payday loan] shops, pawn shops and title pawn shops have surfaced as a response to the need of low-income minority customers because these customers are discriminated against elsewhere,” Thornton said.

He explained that banks are a highly governmentally regulated industry and are often exposed to problems regarding discrimination.

“A lot of low-income people can’t even get bank accounts, so there is no way that they can apply for loans from banks,” Thornton said.

He explained that payday advances should be used in emergency situations. “People should be using them for things like medial supplies,” he explained.

Thornton also offered an explanation for payday loans’ high interest rates. “The high interest rates cover a lot of costs for the lenders. There is a lot of paperwork involved and also the everyday expenses for business,” Thornton said.

With home loans and car loans, there is collateral for a lending officer but with payday loans, the lenders don’t have any sort of material collateral.

“There is a risk for the lender and all those things attribute to the high interest rates,” he said.

He noted that all people considering taking out a cash loan online should talk to someone who has already done it.

“Then the people should go through the same lending office, that way they will know what to expect and they won’t be surprised,” Thornton said.

A Philadelphia woman has filed a multi-million dollar class action lawsuit against a Utah-based lender that makes online payday loans through sites.

According to the suit, Direct Financial Solution of Utah has unlawfully charged Pennsylvania consumers interest rates in excess of 2000% APR and has violated the usury laws of the Commonwealth of Pennsylvania. The suit seeks to recover millions of dollars in illegal interest and to halt the allegedly unlawful loans.

Payday loans are short-term cash loans made to individuals who have poor credit and which require a deduction from the worker’s paycheck for repayment. The Center for Responsible Lending estimates the industry costs Americans $4.2 billion a year by charging exorbitant fees.

According to New Jersey attorney Steven Weisbrot, who is representing the plaintiff, the payday loan industry has migrated to the online marketplace after steps were taken to shut down their brick-and-mortar operations in Pennsylvania.

These companies victimize those who live paycheck to paycheck and “they should be downright ashamed of themselves for putting working class families into desperate financial situations,” Weisbrot said.

The suit seeks to enjoin the payday advance loan lender from preying on the Pennsylvania working class and to recover millions of dollars in damages on behalf of all consumers who have been forced to pay excessive interest rates to what Weisbrot calls “cyber loan sharks” and “blood suckers.”

The owners of Direct Financial Solution have been sued in many states and have agreed to repay millions to the thousands of customers who have paid usurious interest on those loans, Weisbrot said.

Lenders Fight Back
With the federal government sitting out the battle, states have been trying to shut down or at least curtail payday lending, but the industry has been fighting back, flooding state legislatures with lobbyists.

The cash advance online industry says it provides a service to low-income consumers with poor or no credit. Banks will not lend them money, industry backers say, so cash advance stores or payday lenders fill a critical need.

Critics counter that rather than providing a service, the payday lending industry is exploiting low-income consumers, trapping them in a spiral of debt. If a consumer borrows $100, a payday lender typically collects a fee of 15 percent, in this case $15.

(Read on …)

Democratic rivals of millionaire Tom Knox finally saw something to smile about yesterday: a guy dressed as a shark outside the Philadelphia mayoral candidate’s campaign office.

The walking, talking fish called itself “Tommy the Loan Shark” and wore a sign reading “400% interest,” a reference to Knox’s much-criticized past involvement in high-interest payday lending.

The appearance by Tommy (below) was one of several attacks on Knox’s cash loan past that sprouted yesterday from anonymous, self-described independent sources.

According to the Philadelphia Daily News, a conference outside Knox headquarters was led by lawyer Alex Talmadge and the Rev. Robert Shine, former head of the Black Clergy of Philadelphia.

They said they represent a newly formed organization whose mission is “exploring the issues of economic justice as they relate to the business practices of Tom Knox.”

Shine and Talmadge declined to say who else is involved in the effort.

Shine said he’d met with Knox and was “appalled” by his involvement in the payday advance business, which he referred to as “credit heroin.”

In the late ’90s Knox bought Crusader Bank, which made payday loans for about 18 months, drawing criticism from federal regulators.

Knox campaign spokesman Brad Katz said yesterday that Shine had asked Knox for financial support for Shine’s church in exchange for Shine’s support of his mayoral campaign. Knox refused, Katz said.

“That’s outrageous,” Shine said of Katz’s allegation. “I never asked him for a dime. I never asked for money for anything, period.”

Shine did say he’d asked Knox to commit to several policy initiatives for the poor, including “service centers” for the young and the elderly.

“Tommy the Loan Shark” was accompanied yesterday by Jim Nixon, a Democrat who was troubled by Knox’s payday cash loan record and who said he is forming his own organization to raise the issue.

“I’d take any of the candidates over him, and I’m going to be with Tommy the Loan Shark all across this city until this thing is done,” Nixon said.

Meanwhile, fliers began appearing in South and West Philadelphia attacking Knox’s fast payday advance lending and touting the record of rival mayoral candidate Congressman Bob Brady, according to the Knox campaign.

Brady campaign spokeswoman Kate Philips said their camp had nothing to do with the fliers or the shark. Katz said the fliers say a lot about Knox’s opponents.

“This just shows you their priorities,” Katz said.

In 1999, all over Pennsylvania, thousands of people strapped for cash lined up at the storefront offices of a short-term loan company.

They got money, fast, from a bank called Crusader, headed by a self-made millionaire named Tom Knox.

The cash loans averaged $250 apiece. But the interest was so steep that community activists cried foul, and federal regulators zeroed in on the bank. Eighteen months after it began making these so-called payday loans, Crusader, under pressure from regulators, agreed to stop.

Now, the man who ran Crusader is running for mayor of Philadelphia, and his wealth has transformed the race.

Knox’s role in the much-criticized payday advance lending industry is only a brief chapter in his career - “a very small part” of his earnings, as his wife, who was a Crusader director, put it. Knox, who was a millionaire before he bought Crusader, has made his rags-to-riches life story the center of his campaign.

But as polls show Knox surging into second place in the five-way Democratic field, his rivals are already hinting that they’ll make an issue of “predatory lending,” as candidate U.S. Rep. Bob Brady said last month, and Knox is facing questions about his past involvement with no faxing payday loans.

Knox, who served briefly as a $1-a-year deputy mayor under Mayor Ed Rendell in the early 1990s, said in an interview last week that he had no regrets about having gotten into payday lending in 1999 and 2000.

But the longtime insurance executive also acknowledged that it was not one of his best business decisions - and said he “did the right thing” by getting out of fast payday advance lending.

Knox acknowledged that federal thrift regulators - “they’re like Gestapo” - had pushed Crusader to stop this practice. He said the bank wanted out, having tired of criticisms from “social groups, do-gooder types” and federal regulators.

“They wanted us out of the business. We wanted to extricate ourselves,” Knox said. “We got out.”

(Read on …)

At 9:30 a.m. today, shareholders arriving for Dollar Financial’s annual meeting were greeted by several dozen inflatable sharks and people in shark costumes as part of a protest organized by ACORN against the predatory faxless payday loans made by the company’s subsidiaries Money Mart and Loan Mart.

After the demonstration, three of the protestors, including a Money Mart customer from Toronto, Canada, entered the meeting using shareholder proxies address the cash loan company’s executives directly.

The event took place at The Desmond Hotel and Conference Center on 1 Liberty Blvd. in Malvern, Pa.

Reasons behind the payday loan protest: The typical interest rate on cash advance loans from Money Mart is 456 percent, but can be even higher. The company is facing a class action lawsuit in Canada for charging interest rates over 1,000 percent.

While Money Mart says payday loans help people in a one-time emergency, ACORN charges that payday cash advances are set up so people can’t pay them back and thus are forced to repeatedly renew the loans and pay additional interest.

“Money Mart wants to sink us even deeper into the debt trap and keep us owing them for the rest of our lives,” said national ACORN President Maude Hurd.

Money Mart is one of the largest payday lenders in the U.S. and is the largest payday lender in Canada.

Another day, another story about the revenue of a cash loan company.

This time it was Dollar Financial Corp., as the firm saw its shares up nearly 19 percent.

Dollar, a Berwyn, PA-based payday advance loan lender and check-casher, had a net loss of $1.7 million, though that was due to a onetime loss of $8 million for the retirement of $70 million of debt. The company earned $2.3 million, or 12 cents a share, in last year’s fiscal first quarter.

Without the loss from the debt payment, the company said quarterly earnings before income taxes would have doubled to $13.8 million.

Revenue for the quarter for the cash advance operation jumped 23 percent, to $91.7 million from $74.5 million in last year’s period.

The company increased its guidance for fiscal 2007 income before taxes to a range of $63 million to $65 million from a range of $57.5 million to $59.5 million. The news helped send Dollar’s shares up $4.18 to close at $26.43 in Nasdaq trading.

Analysts cautioned that Dollar’s U.S. payday-lending business may be subject to further restrictions by regulators, but were optimistic about Dollar’s growth prospects into Canada and Europe.

The payday cash loan company closed on a $120.9 million deal last month to purchase 82 Canadian franchises.

“This firm is no longer so heavily dependent on the United States,” said John P. Caskey, a Swarthmore College economics professor and industry expert.

Caskey said the firm’s domestic business was up against two difficult trends. First, he said, a shift toward electronic payments (i.e. online payday loans) threatens the firm’s check-cashing business, while regulators such as the Federal Deposit Insurance Corp. have clamped down on payday lenders’ ability to originate loans in states without interest-rate caps.

(Read on …)

Pennsylvania credit unions don't just want to offer alternatives to payday loans - they're receive the monetary back-up to make this into a reality.

The Pennsylvania Credit Union Association and the state treasury kicked off a $20 million program this week that is designed as an alternative to short-term, high interest payday advances.

Credit Union Better Choice is being offered to members or those who meet membership requirements at 37 credit unions statewide to start, with 129 locations. Through the program, a consumer can receive a 90-day installment loan of up to $500, at an interest rate up to 18 percent. There also is an application fee, a maximum $25.

The credit union association said its costs are lower than those at typical, storefront payday cash loan lenders. Another advantage is that the participating credit unions will deposit 10 percent of the loan amount into a savings account in the borrower's name.

To support the program, the state treasury has agreed to put $20 million into an interest bearing account in the credit union system, the association said. The state Department of Banking also provided guidance for the program, hoping to talk people out of applying for a cheap payday loan.

Thinking about a payday advance in Pennsylvania? There's now another option to consider.

In fact, there's a "Better Choice." That's the name of the program developed by the Pennsylvania Credit Union Association (PCUA) in partnership with State Treasurer Robert P. Casey, Jr.

The new Credit Union Better Choice program provides affordable, 90-day loans of up to $500 with a unique savings component equal to 10 percent of the loan amount. Unlike payday loans online, which impose staggering costs on unsuspecting borrowers, Better Choice loans have low fees and safeguards to prevent borrowers from getting caught in vicious debt traps.

"Payday lenders prey on desperate families and cost those who are already struggling to make ends meet billions of dollars per year in fees," Casey said.

"Our Better Choice program gives working people a real alternative to borrowing against their next paycheck. With lower costs, extended installment payments, financial counseling, and a savings boost, Better Choice helps families make ends meet without devastating their budgets."

Better Choice loans differ from these cash loans in a number of important ways:

* A Better Choice loan must be paid in full before a borrower can take out another loan.

* Better Choice customers will be loaned an additional 10 percent that will be deposited in an interest-bearing savings account in the borrower's name.

* Credit unions will offer financial counseling to Better Choice customers to improve their fiscal literacy and help them make smart long-term financial decisions.

* The Better Choice loan application fee will not exceed $25, regardless of loan size. Payday cash loan lenders commonly charge as much as $25 per $100 borrowed.

* The interest rate charged on Better Choice loans will not exceed 18 percent. Payday lending debt traps can lead to effective interest rates in excess of 500 percent.

* No collateral is required.

* The 90-day loan repayment term is considerably longer than most regular or faxless payday loans, which require payment in full by the next paycheck.

* Loan payments can be made in weekly, bi-weekly, or monthly installments.

"There is clear demand for low-dollar, short-term loans," said Acting Banking Secretary Victoria A. Reider, a supporter of the Better Choice program. "The annual volume of loans made by so-called payday lenders is astonishing, as are the allegations of abuse that characterize the industry."

Advance America, the nation's largest provider of cash loan services, says it intends to vigorously defend itself against a lawsuit filed by the Pennsylvania Department of Banking alleging the company is providing lines of credit to borrowers without a license and with interest and fees in excess of state law.

"We created our Choice Line of Credit product expressly to comply with the laws of Pennsylvania," said Advance America Chief Executive Officer Kenneth E. Compton. "Many Pennsylvanians have chosen to use our line of credit since it was introduced in June, which we believe is evidence of the growing value consumers place on such forms of convenient, unsecured loans."

The issue of fairness, when it comes to online cash loans, is always a debated topic, of course.

"Across the country, millions of hard-working Americans can and do benefit from [bad credit payday loans] when faced with an unexpected bill or other immediate financial need," added Compton. "Our customers find these loans are typically a better option for them than bouncing checks, incurring late charges or damaging their credit rating by missing payments."

Compton also said the company is committed to helping consumers and regulators understand the role unsecured personal loans can play in helping individuals with their financial needs.

We'll see how this story ends.